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Bankers’ Euro hue and cry falls short – can ‘selective’ taxes ever be fair?

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Andy Wood

Andy is a practical, creative tax adviser who assists a variety of clients in achieving their personal and commercial objectives in the most tax efficient manner.

Regular readers of this ‘blog will recall how, last month, I wrote about an intriguing case in the High Court in which a major City institution was trying to secure the return of a huge sum which it had paid HMRC after the introduction of a short-term tax on bonuses paid to employees.

To be exact, Credit Suisse handed over £238,799,581 in August 2010 to comply with the terms of a Bank Payroll Tax (BPT) – dubbed a ‘super-tax’ on bankers’ bonuses – brought in by the then Chancellor of the Exchequer, Alastair Darling.

As I outlined in my previous article, Credit Suisse later mounted a legal effort to recover the cash on the basis that whilst it had to cough up, other banks had avoided a payout because of when they doled out awards to their staff. The BPT, maintained the lawyers for Credit Suisse, was therefore, selective.

In addition, due to the tax not having been raised with and cleared by the European Commission in advance of its being applied, the bank argued that it was unlawful.

Nevertheless, Mrs Justice Falk has now ruled against that position.

She concluded that whilst the four months – stretching from December 2009 to April 2010 (referred to as “the chargeable period”) – for which the BPT was in force “was a deliberate feature, it is not immediately obvious that it would be correct to describe the limited period of operation as part of the objectives” of the tax.

That reasoning meant it was impossible for Credit Suisse to assert that banks whose bonus timetable was caught by the tax were being singled out while their competitors escaped what they categorised as a “strikingly unfair” measure.

There was, said the judge:

“very limited evidence on which to conclude that there was at least one other bank that conducted a comparable business at the relevant time, paid material bonuses and escaped BPT as a result of its limited duration”.

On the face of it, the judgement – which Credit Suisse has chosen to take on the chin  – amounts to a costly post-script to an already expensive exercise.

However, it throws up one potentially interesting aspect which might be of wider consequence.

The heart of the High Court ruling concerned the very specific issues of a short-term tax created by the former Labour Government in the wake of the global economic crisis and applied to a group of well-remunerated individuals.

Setting aside those limited circumstances, the Credit Suisse argument could be regarded as something of a prompt to those looking to contest other tweaks to what this case identified as the “normal” system of taxation.

With HMRC under continual pressure to increase tax receipts and politicians of all persuasions determined to enhance their populist credentials by responding to changing financial fortunes – with, for instance, initiatives to tackle the booming profits of internet giants – might there be more people prepared to challenge future selective taxes?

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